Traditional and ABC Costing Managerial Accounting Need Help -> Will give best answer immediately

Question

A company is considering the adoption of an ABC system because the managers suspect that their traditional costing system distorts product costs. The company produces and sells two products, Standard and Deluxe. Their traditional costing system uses machine hours as the allocation base for manufacturing overhead cost. The production managers decided that the major activities are Assembly, Machine Setups, and Parts Administration and determined the costs for each activity. They also identified how many machine hours, setups, and parts each product requires.
Additional info:
Price : Standard : $120 per unit , Deluxe : $150 per unit
Cost :
Direct Materials : Standard : $32 per unit Deluxe : $36 per unit
Direct Labor : Standard : $15 per unit Deluxe : $25 per unit
Units Produced : Standard : 200,000 units Deluxe : 100,000 units
Activity:
Assembly (Machine Hours) : Standard : 100,000 Deluxe : 200,000
Machine Setups : Standard : 100 Deluxe : 400
Parts Administration : Standard : 200 Deluxe : 200
Overhead :
Assembly Cost : $1,200,000
Machine Setups : $900,000
Parts Administration : $300,000

Question 1) Compared with the unit product cost calculated by the ABC system, what is the distortion (difference) created by the traditional costing system for Deluxe Product
A) Product undercosted by $0.35 per unit
B) Product overcosted by $0.35 per unit
C) Product undercosted by $0.70 per unit
D) Product overcosted by $0.70 per unit
E) None
Answer was C) but I need help with steps as to why.
Question 2) The company is assumed to spend equal money on customer relations among its two customers A and B. Total costs of customer relation for these two customers are $10,000. Customer A placed an order as below. Using the ABC system, the customer margin of customer A is (choose closest answer):
Standard : 100 units
Deluxe : 250 units
A) $44,960 B) $45,100 C) $20,010 D) $20,150 E) $25,010
Answer was C) but I need help with steps as to why
Question 3) Which of the following statements is correct?
A) Compared with the ABC method, the traditional method overcosts both Standard and Deluxe product
B) Compared with the ABC method, the traditional method undercosts both Standard and Deluxe product
C) Compared with the ABC method, the traditional method undercosts Standard and overcosts Deluxe
D) Compared with the ABC method, the traditional method overcosts Standard and undercosts Deluxe
E) None
Answer was D) but I don't get why.

Answer 1

The answer to question 1) The ABC impact on unit cost for the Deluxe product is option C). The detail explanation :

 Total DM = 100,000 units produced x 36 unit cost = 3,600,000

 Total DL  = 100,000 units               X25 unit cost  = 2,500.000

 Total OH ABC system:    assembly         800,000

                                     Machine set up 720,000

                                     Parts Admin     150,000      1,670,000

Total cost                                                            = 7,770,000

Deluxe product unit cost under ABC system=            $77.70     ( 7,770,000/100,000 unit produced)

Deluxe product cost before ABC system:

Total DM = 100,000 units produced x 36 unit cost = 3,600,000
Total DL = 100,000 units X25 unit cost                 = 2,500.000
Total OH Machine hours only                                  1,600,000

Total Cost                                                         = 7,700,000

Unit Cost before ABC system                              =  $77.00

The ABC system resulted in an increase of $0.70 per unit

 

The answer to question 2) : Customer A share of total 10K of customer relation expense is $5,000.

Customer A bought 100 units standard at a cost of  @ 50.65 per unit= 5,065

Also bought  250 units Deluxe at a cost of @ 77.70 per unit            = 19,425

The total cost = 24,490+5000                                                     = $29,490

Sales (100X120 Standard + 250 x 150 Deluxe )                           = 49,500

Therefore the Margin made is ( 49,500-29,490)                            = 20,010

 

The answer to question 3) is option D) why?

Before applying ABC system the standard product Cost per unit was $51.00

After  ABC  the cost decreased by $0.35 and became                        50.65

For the Deluxe product the cost before ABC was                               77.00

After ABC the cost increased by $0.70  and became                          77.70